How do We Manage Wealth in Politics?

At the heart of the concept of conflict of interest, particularly in politics, is the convention that the appearance of conflict is to be avoided as assiduously as actual conflict in order to maintain public trust. If Finance Minister Bill Morneau learned a few political lessons over the fall, that may be the most important one.

It is not uncommon for wealthy people to hold political office, but Finance Minister Bill Morneau is a special case. Before becoming the Member of Parliament for Toronto Centre and finance minister in the Trudeau government, he was the executive chair of Morneau Shepell, the largest human resources firm in the country. Prior to the 2015 election, his shares in Morneau Shepell were valued at roughly $40 million, and he has other sources of income in addition to that. With such enormous personal wealth, Morneau provides a stress test for Canada’s conflict of interest regime.

Ministers come under the definition of public office holders and are, therefore, subject to the terms of the Conflict of Interest Act. Broadly, the act requires that public office holders avoid conflicts of interest and that they arrange their personal and private affairs in such ways that prevent conflicts from occurring. There are a number of compliance measures that can be used for this purpose, including disclosure, recusal, blind trust, and divestment. All public office holders must disclose their assets, liabilities, income and activities within 60 days of their appointment and, through consultation with the Ethics Commissioner, determine whether other compliance measures are necessary under the terms of the legislation.

In connection with his compliance with the Conflict of Interest Act, Morneau has (at least) four problems:

1. Upon being appointed minister of finance, he did not place his assets in a blind trust. Outgoing Ethics and Conflict of Interest Commissioner Mary Dawson has confirmed that because these assets are held through a private holding company and not directly controlled by Morneau, there was technically no need for a blind trust. However, since becoming the opposition’s primary target during question period, he has taken steps toward setting up a blind trust.

2. Morneau sponsored Bill C-27, which proposes changes to private pensions that could benefit Morneau Shepell, while still holding shares in the company. The ethics commissioner is examining whether this constitutes a conflict of interest, though the nominee to replace Dawson, Mario Dion, will have to decide whether to continue the examination.

3. Morneau forgot to tell us about his company, SCI Mas des Morneaus, which owns his French villa. This is by far the least of his problems and, for what it’s worth, the ethics commissioner has already fined him $200 for tardy disclosure.

4. The opposition has, under the cover of parliamentary privilege, accused the minister of insider trading in connection with the sale of some of his stocks on November 30, 2015, just prior to a government announcement on tax changes and a subsequent drop in the value of the stocks. Morneau has denied these allegations and opposition MPs have not repeated them outside the House, which prevents the minister from suing.

None of this casts Morneau in a positive light, and a case like this has the capacity to shake people’s confidence in the system. Reports have treated Morneau’s avoidance of a blind trust arrangement (until now) as a loophole that, presumably, other ministers could exploit too, if they had the money. The case also raises reasonable concerns about the enforceability of the ethics rules and whether the ethics commissioner has the tools to ensure compliance. The optics are not good. A $200 fine for a multi-millionaire is a joke. It makes a mockery of the ethics regime and does nothing to encourage public trust in the system or the individuals within it.

The issue of wealth management in politics features prominently in American politics. Campaign finance rules in the United States privilege wealthy candidates; in other words, you need a lot of cash to run competitively. The Center for Responsive Politics reported in 2012 that, for the first time, more than half of 534 members of Congress had a net worth of $1 million or more. America has more experience with managing the private wealth of public office holders.

The American system of government is very different from ours, even though we compare ourselves often. They separate power where we concentrate it. They enumerate rules where we leave things up to convention. The greatest fear for their constitutional framers was corruption; for us, it was inaction and stalemate. Regardless of these fundamental differences in institutional design and motivation, the two countries have ended up facing the same types of problems regarding the regulation of ethics among the political class.

Both jurisdictions, as well as many others around the world, have made increasing attempts to regulate and legalize political ethics so that the rules are clearer and more enforceable. However, the more we try to legalize ethics, the more we seem to uncover the reality that the integrity and enforcement of public ethics rules is ultimately and inevitably a political question. Regardless of the rules in place and the type of system that exists overall, ethical conduct comes down to a calculation at the individual level that could be affected by a number of factors, including political survival, financial interest, the possibility of getting caught, and the punishment for noncompliance.

Morneau must work and live within the confines of the Conflict of Interest Act, but how he does that is, to a large extent, up to him. A blind trust would have been smart from a political perspective, as he is learning, and the fact that he was not “technically” required to have one does little to help him in question period. We shall see how he does on the campaign trail in 2019. For now, his political survival is up to the prime minister who appointed him.

That’s the thing about parliamentary systems: the buck always stops with the prime minister, and this case is no exception. But this involves a political calculation regarding what the government can get away with. It seems that Morneau thought he could get away without a blind trust; he course-corrected as media reports and QP grillings piled up. Prime Minister Trudeau has steadfastly backed him up.

Speaking of what you can get away with, let’s look at Donald Trump. In July of this year, Office of Government Ethics Director Walter Shaub Jr. handed in his resignation after President Trump refused to divest his business interests. Shaub has indicated publicly that Trump has not met the standards that previous presidents have met in terms of disclosure and divestment, and that with such poor leadership at the top it is useless to expect appointees to live up to the spirit of ethics rules.

Both the U.S. Office of Government Ethics and the Canadian Ethics Commissioner play the role of adviser rather than enforcer. This is appropriate in some ways, as appointed officials perhaps ought not be able to force the hands of political executives with a democratic mandate to govern. However, their relative powerlessness when it comes to enforcement puts a huge responsibility on the shoulders of voters to hold politicians to account for ethical behavior.

Lori Turnbull is an associate professor of political science at Dalhousie University and a fellow at the Public Policy Forum. lturnbul@dal.ca